If you're like most homeowners, your home and personal
possessions represent your largest investment. You need to protect
that investment, which is why you're willing to pay homeowners insurance
premiums to an insurance company who will extend that financial protection
to you for a price.
If
you have a mortgage on your property, the mortgage company requires that
you take out insurance coverage to protect their financial investment in
your home. If your home is destroyed, they want to know they'll be paid back
for the amount outstanding on your mortgage loan.
A
Major Problem
According
to a recent survey by research firm Marshall & Swift, fewer than half the homes
in the U.S. are covered by enough insurance to rebuild them after a major
disaster occurs. They go on to say that approximately 60% of American homes are
worth more than their insurance reflects (by 17%). This is an improvement,
however, from 30 years ago when, according to the Insurance Information Institute, 73% of homes
were underinsured by an average of 35%.
There's
no doubt that a certain number of these homes are being underinsured for
the purpose of lowering the homeowners insurance premiums. Another explanation
is that many homeowners only carry as much homeowners insurance as is required
by their mortgage lender, equal or greater than the current amount owing on
their mortgage loans.
If
you fall into this category, there's a good chance that your home is
underinsured. The cost difference between the amount owed on your loan and the
amount that would be required to rebuild your home, including construction
materials and labor, is likely significant.
Saving
on Premiums
Underinsuring
your home in order to save on premium dollars is only smart if you know for a
fact that you'll never need to make a major claim on your policy. And, of
course, you couldn't know this absolutely. As the old saying goes regarding
insurance: “It's better to have it and not need it than to need it and not have
it!”
There
are, however, other ways to lower your homeowners insurance premiums that are safe and
make good sense. Consider these:
- Shop around for the best deal. Use a broker with
multiple companies from which to choose
- Bundle your home, life and auto policies with the same
company
- Explore every discount available
- Choose a higher deductible
- Improve your home's disaster resistance
- Add home security features
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